Platinum’s upside potential

Platinum is ‘supposed’ to be more expensive than gold. That paradigm shifted last fall when gold’s price overtook that of platinum. When you consider the price history of the two precious metals—platinum usually trades at a $200 to $400 premium to gold—the reversal was astounding.

Platinum is more rare in nature than gold. More than 50% of the yearly production of platinum is consumed (used up) by industrial uses, mostly in the automobile industry. Some 40% is used for jewelry manufacturing and 10% for investment purposes.

There are no large inventories of aboveground platinum. Therefore, any breakdown in the two major supply sources, South Africa and Russia, would send the price soaring.

During economic expansion, platinum prices tend to outpace gold given its dual role as both a precious and industrial metal. But when the economy slows down, platinum can often lag. During the 2008 financial collapse, platinum prices fell as investors shied away, bracing for a recession expected to flatten automobile sales. Gold has since has put on a show-stopping comeback, but platinum has yet to bounce back.

But platinum’s current undervaluation is unlikely to last. The gold:platinum ratio is now at 0.92 and, once it begins to move higher, platinum buyers will enter the market. The only factor preventing prices from moving higher is fear. Once investors see that platinum is not breaking lower, they will buy, and platinum will once again outperform gold.

To read P. Radomski article: Platinum’s upside potential

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Tagged as: Gold, Gold as an investment, Platinum, Precious metal, Price, Russia, South Africa, Sterling silver